IP: The failure of venue and joinder reform in patent litigation

Until recently, a patent plaintiff had its choice of bringing suit in any forum in which an accused product was sold—in practice, usually any court in the country. In addition, in the Eastern District of Texas, plaintiffs could typically join as many defendants as they cared to sue under the same set of patents in a single suit. One result was large multi-defendant patent suits in venues such as the Eastern District of Texas, in which a large number of unrelated companies found themselves together in a single patent suit.

The America Invents Act (AIA) changed the joinder rules in 2012, partly in response to the argument that large, multi-defendant cases allowed unscrupulous patent owners to trade on the defendants’ litigation costs and reach artificially high settlements. The theory was that it was cheap for a patent owner to sue a lot of defendants in a single forum, perhaps one inconvenient to many of the defendants, and then to extract nuisance settlements based in part on the costs of getting out of a large and messy case in a distant place. Some also questioned the fairness of forums commonly chosen by patent owners, most typically the Eastern District of Texas. In other words, the argument went, settlements were based on procedural headaches instead of the merits of the patents.

The presence of many defendants in the suit (usually including some from the chosen venue) made it hard to transfer the case to a different venue, because no venue would be more convenient for the whole group of joined defendants. In an effort to get out of Texas, defendants began increasingly to seek transfer of venue in the Federal Circuit based on the extraordinary writ of mandamus. The Federal Circuit responded by accepting the writs and ordering the transfer of cases from the plaintiff’s chosen venue to ones a defendant found more convenient (or more friendly) based on the defendant’s location. Today, a defendant is far more likely to get its choice of transfer in a suit filed by a bare patent owner that does not do substantial business other than patent licensing and enforcement. District judges now grant many transfer motions, following the precedents of the Mandamus cases.

Joinder and Venue Before and After the America Invents Act

Prior to the AIA’s enactment, Rule 20 of the Federal Rules of Civil Procedure governed joinder of defendants in patent litigation. Rule 20 allows joinder of unrelated defendants when the claims asserted against them arise out of the “same transaction or occurrence” and share common questions of law or fact. The treatment of unrelated companies sued on the same patent was not uniform among different courts. Following the logic of the decision in MyMail, Ltd. v. AOL, Inc., some courts found that the common transaction or occurrence required by Rule 20 could be a shared question of law, including questions regarding a patent’s validity or scope. Those courts allowed joinder of unrelated companies in patent cases.

It is in fact true that there are common issues every time a patent is asserted against any number of defendants. The interpretation of the patent in a Markman hearing is a common legal issue to all cases sued out on the same patent. The validity of the patent can also raise identical or substantially overlapping issues of fact and law. Accordingly, there is some logic to the proposition that cases against different defendants on the same patent benefit from some level of common case management. (As a defendant, I have sought to intervene in the claims construction in other defendants’ cases in order to be heard and to minimize the risk of an adverse claim construction that I was not there to oppose.)

To be sure, there are clear problems with keeping different defendants together once a patent case reaches trial, especially if the infringement defenses are different. At a bare minimum, a consolidated trial means extra expense because of the additional trial time devoted to the different parties. The problems are far worse when there is tension, if not actual conflict, among different defense arguments.

The AIA legislated a heightened standard for joinder in patent litigation. Under that standard, unrelated defendants may only be joined when questions of fact common to all defendants will arise in the action relating to the same accused product or process. Unless waived, unrelated accused infringers may not be joined together “based solely on allegations that they each have infringed the patent or patents in suit.”

The World Did Not Change Much

Have the joinder and venue reforms improved the situation for patent defendants? Not really, in my opinion.

While no one should support procedural gamesmanship that is aimed at extracting nuisance settlements, the recent joinder and venue reforms weren’t aimed well at the real problems in nuisance cases, overlooked important benefits to litigants and courts of efficient case administration, and have not changed the landscape much.

The early evidence is that the venue and joinder reforms have done little to change the volume or the dynamics of the assertion of patents against large numbers of defendants and the pursuit of settlements that are lower than defense costs. Ironically, the absolute number of patent suits is up dramatically since passage of the AIA, although this likely reflects only the fact that what formerly would have been one suit against ten defendants is now filed as ten separate suits.

I am skeptical that multi-defendant joinder ever saved any plaintiff much over filing individual suits. It may have helped some plaintiffs hold venue in their chosen forum, and that certainly would affect costs. But it is not clear to me that a categorical rule against joinder is the answer. And the Federal Circuit had already given substantial guidance that had largely reformed venue practice prior to passage of the anti-joinder statute. In addition, trial judges in the Eastern District of Texas were developing procedures to deal with large, multi-defendant cases efficiently.

Arguably, the efforts to reform joinder and venue have had negative consequences. It is more expensive and more trouble for courts and litigants to deal with multiple actions on the same patent in dispersed venues than it was to deal with consolidated patent cases in a single forum. In at least some cases, venue reform has shifted cases from efficient courts that have capacity to try and resolve large patent cases to more clogged venues that are anything but fast and efficient at resolving the cases. There is no guarantee that the reforms have not increased instances of reverse forum shopping and instances of patent defendants holding out based on increased costs and inefficiencies for the patent holder.

In response to the case management problems posed by many individual suits on the same patents, courts are beginning to use their powers of consolidation and case management to address costs and inefficiencies that otherwise would arise from strict separation of all issues as among separate defendants and from strict application of the principles of convenience in forum selection.

For example, some courts are holding a consolidated Markman hearing before transferring defendants who move for a new venue. Other courts have begun to use consolidation of separate cases involving the same patents under Rule 42 to achieve the efficiency of single administration of common legal and factual issues. This includes courts not only in Texas, but also in Delaware, Hawaii, Florida and Utah, for example. Other separate patent cases have been effectively consolidated for pretrial management using multi-district references.

Conclusion

Recent venue and joinder reforms in patent cases aren’t well-tailored to the problems they purport to address, particularly not the anti-joinder statute. They are not specific to high-volume cases that lead to settlements for less than the costs of defense. They may raise costs of defense, and they likely do raise the cost and difficulties for the courts of administering the cases. The anti-joinder provision has caused enough trouble for courts that trial judges have used the tools properly available to them to consolidate and manage common issues, such as consolidation for pretrial management and multi-district litigation. Certainly, joinder is improper in some cases, certainly transfer is appropriate in some cases, but these are usually fact-specific and case-specific issues that individual trial courts are well-equipped to decide.

The views expressed in this column are those of the author alone and do not necessarily reflect the views of the author’s law firm or of its clients. The author extends gratitude and recognition to Sally Spector for assistance in the writing of this column.